Essays on Trade Shocks and Spatial Unemployment

The first chapter documents how increased import competition from China affected unemployment dynamics across U.S. commuting zones. Using a shift-share empirical design, I find that regions more exposed to the China trade shock experienced persistent increases in unemployment. These effects are driven by both elevated job separation rates and sharp declines in job finding rates, with consequences that extend well beyond the initial exposure period. The empirical results highlight the need to move beyond relative effects and explore the underlying mechanisms driving the persistence and distribution of unemployment. The second chapter develops a multi-region, multi-sector labor matching model with endogenous job creation and destruction to explain these results and capture the persistency. The calibrated model confirms that the China shock raises unemployment, decreases employment, and increases welfare inequality across many U.S. states. The China shock raises the overall U.S. unemployment rate by 0.18 percentage points and accounts for 87% of the decline in the manufacturing employment share of working-age population from 2000 to 2007, while boosting overall productivity by 0.16% and improving welfare by 0.04%. The Hosios (1990) condition alone cannot achieve constrained socially optimal allocations in this model. A redistributive corporate tax policy could improve welfare, reduce unemployment, and restore pre-shock manufacturing employment levels. The third chapter looks into spatial unemployment by studying how frictional labor markets contribute to spatial labor sorting and, consequently, to disparities in productivity, wages, and unemployment across regions. The model incorporates frictional labor matching with two worker types, two locations, and free labor mobility. It predicts that skilled workers tend to sort into areas with higher productivity, higher wages, and lower unemployment rates. Empirical evidence aligns with these theoretical predictions, suggesting that frictional labor markets play a crucial role in shaping spatial economic disparities.